Exchanges Take Centre Stage in Latest Developments Around the Post-Merge Debate

An Ethereum hard fork may be forthcoming, but the forked projects will struggle to retain relevance in the same environment as the post-merge Proof-of-Stake chain.

Last Friday, Ethereum cofounder Vitalik Buterin acknowledged the possibility of Ethereum hard forks emerging, with the mining sect advocating for a PoW-based Ethereum fork. The co-creator admitted that if a significant number backs a proof-of-work hard fork, it will be up to the applications to choose the chain to power them. The hypothetical choice will be between the proof of stake chain or the forked PoW chain.

Miners, traders and developers alike have a sway in the outcome of this eventuality, but they aren't the only elements in the equation. A seal of approval from digital assets trading platforms and exchange will also be key in determining the fate of either chain in this hypothetical case. Thus far, exchanges have presented mixed endorsements, with some of those open to preserving the PoW chain, preemptively creating and listing markets for the possible forked tokens that don't yet exist.

Exchanges take a stand

Earlier this month, crypto and derivatives trading platform BitMEX explored the viability of a chain split in Ethereum that will birth a new ETH Proof of Work (PoW) coin.

“[..] although the ETHPoW chain may have many technical challenges and its long-term viability is in question, its existence may provide an exciting opportunity for traders and speculators in the short to medium term,” the exchange's research team concluded in a report.

More recently, BitMEX published a blog post on August 8, addressing the confusion surrounding the state of affairs after the anticipated transition to PoS. The exchange noted that it intends to give leveraged exposure on ‘ETH PoW' via an offering whose existence entirely hinges on preserving the proof-of-work-based chain. The Tether-margined ETHPoW futures contract went live on Tuesday and will allow traders to speculate on the price of not-yet-existing forked ETH using USDT.

HTX, Poloniex and OKX have no issues with an ETH PoW fork

Another exchange providing exposure to the potential ETH PoW network token in the form of futures markets is Poloniex. The Justin Sun-backed trading platform, which was among the first to offer ETH and ETC trading, has already moved forward with issuing an ‘ETHW' token on the Tron blockchain.

“Poloniex will give full support to ETH's upgrade and its potential hard fork. If successful, the Merge could create two parallel blockchains after the upgrade. All Ethereum  holders on Poloniex will receive the forked assets at a 1:1 ratio when the upgrade is complete,” the exchange communicated on August 4.

HTX responded to the potential hard fork matter by stating that it is open to listing forked assets so long as they meet the specified criteria. OKX exchange's CEO Jay Hao, on the other hand, said that the exchange was closely tracking the situation but will support The Merge. Hao added that OKX would be persuaded to list forked coins resulting from any potential Ethereum if the demand necessitates it.

While the stance of many exchanges is reasonably dictated by demand, the same can't be said for other decisive parties like smart contract infrastructure providers and stablecoin issuers. The two groups also fit in the post-merge environment, and as such, their bearing on the matter is crucial.

Circle and Tether will support only support the PoS chain post-merge

Stablecoin issuer Circle communicated via a blog post published on Tuesday that it endorses the Ethereum PoS switch and will support the proof of stake-based Ethereum chain. The USD Coin issuer justified the decision noting that its USDC stablecoin can only exist as a single valid version.

“USDC is the largest dollar-backed stablecoin issued on Ethereum and, as the issuer of USDC, Circle intends to fully and solely support the Ethereum proof-of-stake (PoS) chain post-merge.” Circle VP Product Joao Reginatto wrote.

The news was followed by an update from Tether. The stablecoin issuer behind USDT wrote that it is closely monitoring “the progress and preparations for (the Merge) and will support POS Ethereum.” USDT and USDC coin are the biggest stablecoins with a market capital of $66.53 and $54 billion, respectively, at the time of writing.

Chainlink sides with the Ethereum PoS chain

The Chainlink protocol also recently shared an update through which it threw its weight behind the Ethereum Foundation and the fraction of the community backing the PoS consensus layer. The memo to the community stated that the protocol will support no forked versions after integrating the mainnet with Beacon Chain.

“Chainlink will remain operational on the Ethereum blockchain during and after the Merge to the PoS consensus layer. Users should be aware that forked versions of the Ethereum blockchain, including PoW forks, will not be supported by the Chainlink protocol.”

It also advised developers who are uncertain of their next steps as far as PoS switch is concerned to pause their smart contracts operations.

Views from other observers

The switch from PoW will slash the network's energy consumption by up to 99.5%, according to figures from Ethereum. Taking no notice of this and other advantages it presents, those against it cite security vulnerabilities. PoS is the algorithmic proof utilized by several blockchain networks, including Avalanche, Cardano, and Solana.

Tron creator and Ethereum cofounder hold contrasting beliefs

On a personal level, Tron Founder Justin Sun contends that the existence of the PoW hard fork has a ‘unique' value.

“It is risky for Ethereum to move completely from PoW to PoS, and I don't think there is any wrong to preserve the PoW chain for the Ethereum community,” he argued.

In a tweet shared last Thursday, the Tron founder promised to donate a fraction of forked tokens to support the ecosystem if the ETH PoW prospect becomes a success. Vitalik Buterin, on the other hand, has been outspoken in opposing any hard fork that would pave the door for another blockchain with a PoW method. He is joined by many other influential crypto figures that see no need for a PoW chain.

Digital Currency Group CEO Barry Silbert confirmed (albeit not via an official announcement) that the digital assets investment firm has no intention to support any Ethereum hard fork. Silbert suggested that Ethereum miners migrate to Ethereum Classic to keep their income stream flowing. For Coinbase Wallet's Head of Engineering, Pete Kim, the risk that comes with interacting with the forked chain is reason enough to ditch the idea altogether.

To learn more about Ethereum visit our Investing in Ethereum guide.